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Honeywell Q2 Highlighted by Strong Execution and EPS Expansion
by Daniel Newman | July 23, 2021

The News: CHARLOTTE, N.C., July 23, 2021 — Honeywell (NASDAQ: HON) today announced outstanding results for the second quarter that were driven by sales and segment margin growth in all four businesses. The company also raised its full-year sales, segment margin, adjusted earnings per share, and cash flow guidance. Read the full earnings press release in the Honeywell newsroom.

Analyst Take: As a technology industry research firm, we have had eyes on Honeywell over the past few years, watching the company’s shift from broad industrials to technology innovator across the industrial sphere. 

This quarter marked a solid performance from the company led by growth and margin expansion in all four key business segments including Aerospace, Building Technology, Productivity & Safety, and Performance Materials. The company raised guidance and executed very well.  In this piece I will focus on the technology lens and Honeywell’s continued transition investment and inroads in software, analytics, computing and other tech-led endeavors.  

Earlier in the quarter, I had the chance alongside fellow analyst Patrick Moorhead to sit down with Honeywell Chairman and CEO, Darius Adamczyk to talk about the company’s transition to technology. After spending some time and hearing Darius discuss his vision for the company, it was easy to ascertain that the company is operating in parallel with a deep focus on executing in its legacy business areas, but utilizing data, software, analytics, and other breakthrough innovations to drive the next wave of growth for Honeywell. Moreover, the company is at an inflection point where it seeks to pivot from its legacy as an industrial name to a rising technology player seeking to wield the same influence over industry specific technology as a Microsoft or SAP wields within the IT and Finance departments. 

The evidence of this shifting focus can be seen and felt across the business including technologies for building management including a newly announced partnership with SAP. SPS is aggressively layering software into its plans to support the growing trend of human in the loop and out of the loop technologies in manufacturing and warehousing facilities. We know automation and robotics are the future and my assessment is that Honeywell understands the critical nature of participating meaningfully in this opportunity.

It is also important to monitor the company’s growing focus around its ESG efforts, noting half of its investment in innovation and research now leans toward environmental and social good efforts. These types of investments are prudent for company’s looking to build positive sentiment from the market. It has also become table stakes among “Tech” for companies to lead in this area. As an industrial straddling the tech space this will be something outsiders will immediately pay attention to and so far Honeywell is checking the right boxes. 

Tech Could Be an Even Larger Focal Point

While the company’s major tech investment in areas like its Forge Software (SaaS for Industrial IoT), and Honeywell Quantum were not a focal point of the ER, what I did catch in the comments was a mention of the double-digit percentage growth in several categories including Forge orders in 2021 as well as Sparta Systems Healthcare Software seeing double-digit customer growth. Last quarter the company mentioned double-digit percentage growth in software overall. I see all of these as small, but meaningful which signs of the company’s technology-led transition. 

One big technology event that took place this quarter was the decision to create a new joint venture with Cambridge Quantum Computing (CQC). Effectively Honeywell’s quantum business (HQS) will merge with CQC to create a new venture that will be 55% Honeywell owned. I saw this as a positive getting the quantum business out from under the big Honeywell umbrella and making it a greater focal point. The likely outcome will be a new public company, but there are many undisclosed details at this point.

I maintain my sentiment from last quarter’s results that an area for continued monitoring will be how Honeywell is currently reporting and speaking to its tech investments and business growth. Double digits, as mentioned, provides an encouraging figure, but without much information in terms of the specifics of the revenue and adoption, it leaves a lot of question marks. Much like cloud growth from certain companies mentioned but lacking specific context, it leaves a certain amount of room for skepticism. I’m interested in gathering more detailed data on its revenue and growth in its software endeavors. However, I expect we could be a year or more away from any granular disclosures. 

Overall, Q2 was very strong by traditional standards and for typical industrial analysts there is a lot to like. From where I sit, I’m primarily paying attention to the company’s technology transition and I am encouraged by what I am seeing. I stand by my assessment that Honeywell is a business in transition, and it deserves a certain amount of credit for its tech endeavors. Software certainly adds revenue across the segments but is more of an additive layer to serve its industrial base than a product in itself. This approach is likely very intentional but will be an important point of consideration as the company seeks to be more and more treated as a technology firm. 

Futurum Research provides industry research and analysis. These columns are for educational purposes only and should not be considered in any way investment advice. Neither the Author or Futurum Research holds any positions in any companies mentioned in this article.

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Image Credit: Honeywell

About the Author

Daniel Newman is the Principal Analyst of Futurum Research and the CEO of Broadsuite Media Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise. Read Full Bio